Turkey: U.S. Urges Solution To Caspian Pipeline

Boston, 23 September 1999 (RFE/RL) -- The United States is increasing the pressure for a solution to the Caspian Sea pipeline problem in the days before Turkish Prime Minister Bulent Ecevit's visit to Washington next week.

The efforts appear to be aimed at achieving a breakthrough that could be announced during Ecevit's meetings with U.S. President Bill Clinton. But so far, the oil industry is still stopping short of a commitment to build the Baku-Ceyhan oil pipeline from the Caspian to the Mediterranean Sea.

In recent days, both Turkish and U.S. officials have gone to great lengths to influence the decision. In Ankara, John Wolf, the U.S. government's Caspian representative, insisted that the Azerbaijan International Operating Company "must stop using the process of negotiations to block the solid test of Baku-Ceyhan in the marketplace," the Financial Times reported.

The charge of deliberate delay may be the harshest criticism aimed at the oil companies of the AIOC consortium by a U.S. official. But frustration with the negotiating process has risen as months have passed.

On Tuesday, David Woodward, the AIOC's president, firmly rejected the allegation. The consortium led by BP-Amoco continues to insist that the decision on a main export pipeline must be based on commercial realities rather than strategic goals.

Impatience among the governments of the United States, Turkey and Azerbaijan may also be a function of the fifth anniversary celebrations of the "deal of the century" with AIOC, which were held in Baku this week. The value of the 1994 contract for Azerbaijan's offshore Azeri, Chirag and Guneshli oilfields has now risen to an estimated $11 billion. But the question of a main export pipeline to carry the oil is also facing an anniversary.

The deadline for choosing an export route was supposed to be last October. Technically, the choice was to be made by Azerbaijan, but the oil companies ultimately must pay for the line. Although Baku-Ceyhan was likely to cost more than alternatives through Georgia and Russia, or possibly Iran, Washington pressed the Turkish route as the key to Western orientation, energy security and the problem of traffic on the Bosporus.

But with low oil prices and lower-than-expected Caspian oil volumes, AIOC has been meeting its needs with its "early oil" line to Georgia's Black Sea port of Supsa. In the meantime, it has continued negotiations on the costs of Baku-Ceyhan, while U.S. officials urged Turkey to make it more reasonable.

As the first anniversary of the expected agreement approaches, frustration has mounted along with the reasons for delay. In reality, much of the past year has been spent in making the Turkish route more competitive.

After months of negotiations, Turkey agreed to guarantee that the cost of pipeline construction would not rise above $2.4 billion, despite estimates as high as $3.7 million. But in June, Turkey announced that the cost would rise to $2.7 billion. On Monday, Turkish officials again refined the terms of the guarantee.

Yurdakul Yigitguden, a Turkish energy official, said that Ankara still back its estimate of $2.4 billion, but it will provide a guarantee at a higher level if additions to the project are made, he said. The maximum cost is still only one of the pipeline's problems.

The oil companies have argued that Caspian volumes do not justify investment in the Baku-Ceyhan pipeline, which would carry one million barrels per day. Ambassador Wolf believes an agreement on the line could attract additional volumes from Turkmenistan and Kazakhstan.
But AIOC officials are now suggesting that a second line could be built along the Baku-Supsa route for as little as $700 million, meeting the AIOC's needs for years to come. The line would not necessarily increase Bosporus traffic. A host of European solutions, including a proposed line from Romania through Hungary and Slovenia to Trieste, have also won some U.S. support.

Azerbaijani officials said this week that such solutions may rob Baku-Supsa of the needed volumes to underwrite the cost. Azerbaijan's recent discoveries of gas have also made it a competitor for sales of that fuel to Turkey, but they have not helped its case on oil.

As the year has passed, Turkey has also undergone a series of unexpected developments. Despite its recent earthquake, officials insist that a Baku-Ceyhan line would not be susceptible to damage. The capture of Kurdish leader Abdullah Ocalan has also raised the uncertain prospect of peace in eastern Turkey along the pipeline route. War in the Caucasus may cloud the outlook for big infrastructure projects even more.

Although government officials may try to press an agreement before any more problems arise, industry is likely to weigh the effects on cost from each added risk.

Time may not favor Baku-Ceyhan, but persistence makes it hard to rule out. Without time, it may be impossible to satisfy both commercial and political interests.